Welcome to The MapleMoney Show, the podcast that helps Canadians improve their personal finances to create lasting financial freedom. I’m your host, Tom Drake, the founder of MapleMoney, where I’ve been writing about all things related to personal finance since 2009.
The end of the year is coming to a close, but it’s not too late to optimize your taxes to keep more of your income. My guest this week, Janine Rogan, runs us through a checklist of year end tax tips, to help you get a bigger refund in the spring.
In this episode, Janine emphasizes why it’s so important to understand your income and tax situation prior to the end of the year. For example, deciding to incur a capital loss may offset an anticipated gain, or vice versa.
Self employed individuals could save money by squeezing in a planned expense prior to December 31st, so that it’s eligible as a tax deduction.
On the topic of tax refunds, Janine explains why getting a $5000 cheque from the government isn’t really a good thing, and how you can take steps to avoid it.
Have you heard of Smart Savings, by our sponsor, Wealthsimple? Put simply, it’s a better way to save. They offer no-fee deposits and withdrawals, and higher interest rates than the banks. To learn more about Smart Savings, head over toWealthsimpletoday.
- Did you know? Unused charitable donations can be carried forward to future years.
- The importance of knowing your income situation at year end.
- Understanding how TFSA contribution guidelines work.
- The best time of year to pull money from your TFSA.
- Do we take tax sheltered vehicles (TFSA’s, RRSP’s) for granted?
- The benefit of offsetting capital gains and losses prior to year end.
- If you are self employed, incurring expenses can lower your tax bill.
The end of the year is coming to a close but it’s not too late to optimize your taxes to keep more of your income. Janine Rogan runs us through her checklist of year-end tax tips to make sure you know what you can do now for a bigger tax refund in the spring.
Welcome to the Maple Money Show, the podcast that helps Canadians improve their personal finances to create lasting financial freedom. Smart Savings, by our sponsor, Wealthsimple, is a better way to save. There are no fees on deposits and withdrawals and they offer higher interest rates than big banks. You can find out more about Wealthsimple and Smart Savings at maplemoney.com/weathsimple. Now, let’s talk with Janine…
Tom: Hi Janine, welcome to the Maple Money Show.
Janine: Thanks for having me, Tom.
Tom: I wanted to have you on because you’re sort of the tax expert I believe really knows their taxes. We’re getting close to the end of the years so I figured you could run us through some of the different ways we can take advantage of that before it’s too late. Just to kick it off, do you want to hop into the one thing everyone might be able to benefit from?
Janine: Absolutely. As the end of the year approaches, one of the most important things to think about is how you’re going to be able to claim all of those deductions around charities and political contributions. Those definitely have a time limit on them of December 31 so I think it’s important that people start planning over the next couple of weeks to make those contributions if that’s something they’re looking to do.
Tom: And it’s a great time to do it. Everybody wants to give during the holidays. I haven’t looked at the numbers lately but, you get more money back from giving to a political party than you do for a charity, right?
Janine: Yes. In terms of percentage, you do to an extent. There is a limit on that but I find most people don’t end up hitting that when they give to political parties.
Tom: Fair enough. With the charities, there’s a case where you can save up over multiple years and benefit more?
Janine: Yes, they are to be carried forward for up to five years. So, if you have charity contributions that you’ve given in previous years and you’ve forgotten to claim them on your tax return, you can definitely utilize those in the coming tax years. And if maybe in the year 2018 you didn’t earn a lot of money or you’re already getting a refund, you might want to save those and roll them forward to years where you are earning more income throughout the year.
Tom: That sounds helpful because I personally want to get as much money back—
Janine: Of course, everyone does.
Tom: Every little gimmick we can take advantage of helps.
Janine: Yes, every dollar counts, for sure.
Tom: What’s the next one you’ve got in mind?
Janine: I would tell people to start looking at what their income is going to be for the years. Maybe this is one that probably doesn’t have to be done right before December 31, but understanding what you’ll up until December 31 is really important so that you can start to plan those RRSP contributions in the New Year. The deadline to contribute to an RRSP for 2018 is March 1, 2019. So, it’s important to start understanding if maybe you need to make a bigger contribution so you can get money back from the government instead of owing it back.
Tom: That’s always been the way I do it, loosely. I contribute within my highest marginal tax rate and then to the TFSA next after that. I don’t like to contribute into the next tax bracket.
Janine: For sure. And those are also things you can roll forward. You don’t have to claim all of the RRSP contributions you’re making in the year. You can carry them forward to a year where, again, you are earning a higher income because that is definitely where you’re going to see the most benefit. The higher tax bracket you’re in, the more you’re going to get back from that RRSP contribution.
Tom: Sounds good. And speaking about carrying forward, how about the TFSA? What do we need to know for that?
Janine: You have until the end of the year to contribute your $5,500 this year, for 2018. If you were maxing out your contributions every year, you will actually get $6,000 starting on January 1, to contribute for the 2019 calendar year. So, if you plan on pulling money out of your TFSA, now would be the time to do so because you’re going to get that contribution room back once the New Year kicks in.
Tom: I’ve had this question a few times so we might as well put it out there right now. A lot of people question, when you pull out a contribution, including any gains, you do get the extra room back in the next year, right?
Janine: Correct. They only track what you pull out. If you’re in a loss position on an investment it wouldn’t be wise to pull that out because you’d only be able to contribute what you’ve pulled out. But, if you’re in a gain position and you pulled out everything in your TFSA— let’s say maybe it was $100,000 that you were sitting on in your TFSA, you would get to contribute that $100,000 back into that account.
Tom: I’ve had that question a few times and that’s how I’ve answered it so I’m glad I’m getting this right. I’ve never really pulled money out of my TFSA so I can’t say from personal experience. I’ve had that question more often than I would expect so it seems to be something that people aren’t sure of—yes, you actually can pull out your gains and use that again next year.
Janine: For sure.
Tom: That is the catch though, that you have to wait until the next year? You can’t pull money out in July. You can’t put it in August or something?
Janine: Correct. I actually fell into that trap really early on when the TFSA first came out and I think I ended up owning $200 in interest charges and penalties which was not fun at the time. But it isn’t very much now. That’s definitely something to be mindful of. Make sure you’re waiting until that new calendar year to re-contribute what you’ve pulled out.
Tom: I do remember that being very confusing the first year it was out.
Janine: Absolutely, even though the government knew.
Tom: Well, obviously, it was probably coming from there and that might have been what was making it a little confusing. I remember that was quite a big story at the time, maxing out this contribution. What other tax tips can we get in?
Janine: I think a really important one people should focus on it taking a look at their capital gains and losses for the current calendar year and any unregistered accounts. It’s not going to matter for your RRSP or your TSFA because those are tax-sheltered but if you are in a position where you’re going to be realizing either gains or losses, you can use those against the gains or losses. For example, this would be if you realize a gain in the current year and you were hoping to sell some shares of something that was going to be taking a loss, doing that before the end of the calendar year is going to be important so that you can net the two against each other and not owe as much from a capital gains tax prospective.
Tom: Okay, so you get the losses in by the end of the year just to offset some of the gains you may have had throughout the year?
Janine: Yes, or vice-versa. If you realize a loss at any point during the year you might consider selling something so you can realize a gain offsetting the loss and it’s not still paying the tax on that.
Tom: Specifically with investments, are there any other things we can take advantage of?
Janine: I think one to be mindful of is definitely taking a look at your investment portfolio around how certain things are going to be paying out interest or capital. When it comes to mutual funds you don’t really have a choice on some of that. But some of the investments you might be able to work with an investment manager to try and realize the most appropriate way of receiving that income or interest or additional mutual fund shares.
Tom: Okay. That’s because it’s all taxed differently?
Janine: It is, yeah. That is something to take into account because they have different tax rates so you’ll want to make sure that you are planning for that and that you can utilize some of those appropriate tax measure around how you are earning that income.
Tom: I know this has changed a lot. Different political parties come and go and there have been a lot of taxes, especially around families, that have changed. Can you go into what’s currently available?
Janine: Currently, there is some tax claiming for families that they can use. I believe it’s called the Child Tax Credit right now. It has changed over the years and we might be seeing another change coming up here in 2019 as political parties do not stay the same. It’s something to take a look at. It’s usually more helpful for lower-income families so if that’s a situation that families find themselves in, then I would definitely say to take a look at that. Usually it’s pretty easy to file for when you are filing your tax returns. It’s similar to how you would receive a carbon tax rebate or GST rebate, provincially here in Alberta and federally from the government.
Tom: This reminds me of something I’ve reminded people about in the past—the idea that as political parties change all these rules can change easily.
Tom: I’ve often said that with spousal RRSPs and people think, “Oh, it doesn’t matter if we have all our RRSPs in just one person’s RRSP because we can split it,” but you may not be able to in 30 years from now when you’re retired.
Janine: It’s true and that’s one thing I try to tell people when they’re looking at TFSAs. We don’t know how long this is going to be available as a tax-free vehicle. We’re getting into the $60,000 of an individual being able to contribute tax-free—who knows when the government is going to cap it or say you have to start paying taxes over a certain amount. So, I think it’s really important to utilize the fact that we have this time on our side and we have a vehicle that’s going to allow us to save tax. But, it may not be here, like you said, in 5, 10, 15 years so it’s important to use it now while it’s available.
Tom: Yeah, the same with any of these tax credits, I guess?
Janine: Oh, absolutely. I mean, RRSPs, RSP, TFSA… everything, if you can take advantage of them. I realize that’s a lot of contributions if you have multiple kids and both spouses have both of those RRSPs and TFSAs but if you figure out a way to maximize them to the best of your ability, I would say to do so while they’re still here.
Tom: You brought up RRSPs here in Alberta where we both are. When I first had my kids we had the Alberta Centennial something or other. It was an extra Alberta grant that was part of the RRSP. I took advantage of early. If I had waited until they were 10 or older which they aren’t yet, it’s not around anymore.
Janine: Right, exactly. As soon as people hear about those grants that are available, definitely utilize them. That’s one of the reasons why it’s so important to file your tax return and get your documents in order is because some of these benefits people don’t even know that they’re able to realize and receive, so filing that return—as painful as it may be, is important so you can utilize those grants and rebates you get from the government.
Tom: I committed a personal finance sin. I was behind on paying my taxes—
Janine: I won’t tell.
Tom: It was either last year or the year before. I can’t remember but, because of that we didn’t get the Child Tax Benefit right away. It had to wait until the taxes were filed.
Janine: Yes, they will hold that back if you are behind on your taxes.
Tom: So anybody having concerns with getting money like that then has to file taxes even if you’re not making an income.
Janine: That’s for sure. Or a student so you can start to rack up those tuition credits. It’s so important for when you’re starting to actually earn money after college or university.
Tom: Yeah, I remember my dad used to always use my student expenses because I had no income during the first part of college. He’d say, “Send me in all of your expenses,” because he could take advantage of it—at least at the time.
Janine: Parents can still take up to $5,000 of tuition credits from their children barring the fact that those children use up all of the credits first if they didn’t have an income. If not, it can all be carried forward.
Tom: What’s next on your list that someone can take advantage of?
Janine: This one is specifically more for those people who are self-employed. If you are filing a statement of self-employment income or you ran an online business such as a blog or you have some side-hustle income, now would be a great time to make sure you’re getting in all those expenses for the year. If you’re looking at purchasing some new equipment for you business, getting that in before the end of the year is really going to help reduce your tax bill for the current year if this was something that you were going to purchase anyways.
Tom: So you don’t want to add expenses just to pay taxes.
Janine: No, that doesn’t make sense. From the standpoint of running a business, if you were going to buy a new camera, a new laptop or some software for running a program or editing photos, I would definitely say to try and get yourself sorted and get those in by the end of the year so you can look at where you’re going to stand from a business prospective. And if there is anything you can do to lower your taxes.
Tom: It’s just a nice time to be planning for the New Year anyway. Say you’re a photographer or something and you want to buy a new camera, that could help set up what you’re planning to do in the coming year.
Janine: You can take advantage of Black Friday sales, Boxing Day and all those good things. I feel like everything is on sale from Black Friday until the New Year.
Tom: Black Friday is not a day anymore.
Janine: No, no, it’s Black Friday month. Yeah.
Tom: Is there anything else within the business side or is pretty much just getting those expenses in?
Janine: Definitely getting those expenses in, yes. And if you are incorporated it would be a great time to look at whether or not you want to pay yourself a salary or dividend for the year. And that’s going to be based on what your tax rate is, what you need to survive on and if you’re earning income from any other sources, and if you need to add contribution room for your RRSP or CPP in the future. Those are all going to be things you will want to be looking at in the current calendar year before deciding whether or not to go to the salary or dividend route.
Tom: If we can just go back here for a second. I mentioned spouses that perhaps don’t have any income. What do they do tax-wise? They still fill out a tax return, right?
Janine: Correct. Legally, I don’t believe you have to file a tax return if you don’t owe. But, of course, it’s always a good idea to do so. Like I said, it’s so you can get those credits and reimbursements. As well, there might be opportunity to claim a spousal credit if your spouse is not earning any income on the higher income earning spouse. And as you get into retirement there may be opportunity to do pension splitting. Or if they actually do work for your business, there’s obviously the opportunity to pay them for the work and just smooth the wages your corporation is going to earn that way. So it is really important even if you don’t have income—maybe you’re a stay-at-home spouse, filing a tax return.
Tom: That makes sense. I think at one point filing your tax return was connected to making sure you’re registered to vote as well too?
Janine: You know, I’m not sure about that.
Tom: I think you can go out and make sure you’re registered anyway. They always want you to check but I think one of the things was from the tax return where they could—
Janine: I’m sure you’re in the system to vote, based on your tax return. Then yeah, like you said, if you didn’t file a tax return it’s not like you can’t vote. That’s definitely something that people should be looking at especially since they’re probably going to be calling an election next year, federally, and maybe provincially too—if you’re in Alberta. So filing that tax return is maybe going to make it easier for you when it comes time to vote.
Tom: For sure. Is there anything else on your mind people can take advantage of?
Janine: I’m starting to run out of ideas when it comes to tax tips for the end of the year but I would really just to try and take that realistic view of what the situation you’re going to be in. Nobody likes surprises. Try utilizing Simple Tax which is a great online program that’s really easy to use as a means to have a ‘guesstimate’ of your taxes for the year. If you aren’t really sure what boxes are going to show up on your T4, you can always go to your last paystub of the year and look at the year-to-date gross number. Then plug those numbers into Simple Tax and it will give you a rough idea whether you’re going to owe or not. Even if you are going to owe, now would also be the time to start planning for that tax bill because nobody wants to be surprised with a five or six figure tax bill come April 30th.
Tom: This is a good point to bring up too. I’m kind of anti-tax refund—
Janine: I agree. I think everyone should be sad if they get a tax refund.
Tom: Yeah, because we’re basically loaning the government money.
Janine: For free too. And you can get three percent with EQ bank so what are we doing?
Tom: There is a form you can fill out to have less tax taken off your paycheck, right?
Janine: Yes, the TD-1 can be filled out every year if you wanted it to. Let’s say you’re going to contribute to your RRSP or you have childcare expenses, this form asks them (the government) not to tax you as much. That way you’re not getting a refund. I know people love getting those $5,000 refunds because they can use it for savings or to pay down debt or go on a wicked vacation. But, at the end of the day, like you said, it is the government holding onto your money for the entire year. Whereas, if you do owe, it’s the opposite. You’ve held onto the money the government needed, for free and with no interest. You just have to make sure you’re able to pay it at the end of the year. That being said though, if you do owe more than $3,000 they could require you to start paying by installment. That’s something to keep in mind. So I always try to say, if you’re going to owe, try to owe less than $3,000.
Tom: And you’ve got to know what kind of person you are too. If you’re going to fill out a form like that and you’re just going to blow the money—
Janine: Yes, if you can’t save every month for your taxes, definitely have them take off as much as possible. Because we always end up owing just with side-hustles and self-employment income, what my husband and I do is put away whatever percentage we’ve calculated into either a short-term GIC or a high-interest saving account. That way we’re actually earning a bit of money off the tax we owe the government.
Tom: Yeah, a simple thing is, if you fill out the form asking to take less off your paycheck, take that exact amount and put it away.
Janine: Exactly. Then you’re not really able to see it and spend it.
Tom: If you do end up with a tax refund one of the things I’ve always suggested to people—which is the easy way without knowing their full financial situation is to put that into the RRSP and improve your refund for the next time.
Janine: For sure. If you get a tax refund, stick it in your RRSP and get more of a refund the next year.
Tom: And it’s much better than blowing it on the big vacation.
Janine: Totally. I mean, vacations are fun for sure, but that’s money you could have been using to pay down debt and pay less interest or invest for your future. You could have that money sooner. So there is a time-value of money thing people need to be thinking about. If you’re waiting until the following April in 2019 to get money back that you could have had in your pocket in January, you’re now looking at—what is it, 14 or 15 months of not earning any income or any returns on that amount. That’s definitely something to take into account.
Tom: I do prefer the idea of saving two weeks when you get your paycheck.
Janine: Absolutely. I tell people they should be happy if they owe the government money. I get weird looks but at the end of the day it’s better to have that money in your savings account than in the governments.
Tom: Yes, I’ve heard people say the same thing to me. They’ll complain, “I had to pay the government taxes!” And I’ll say, “We all have to pay the government taxes.”
Janine: No, I’m not saying that taxes are horrible because we definitely need taxes. They serve a huge need in our society. I just mean minimizing what you owe because nobody wants to pay more than their fair share and making sure you’re getting the most value out of it.
Tom: Yes, we should pay exactly what we owe and no more.
Janine: Absolutely. Another really good point as to why your should file your tax return is, what if you were owed a refund? If you don’t file, you’re never going to see that money again. And it’s something so simple.
Tom: That’s a good point. I had someone at work a few years ago that said they hadn’t paid their taxes for seven years. I’m surprised they weren’t being hunted down. But it’s just surprising because chances are they did have a refund.
Janine: At that point they probably did.
Tom: It seems, at least in my experience and from anyone I’ve talked to, companies will normally take more tax off.
Janine: Or they’ll tax the amount as if you had no other deductions or credits to take. For example, if you bought a home, the home buyers credit. Or if you ever contributed to your RRSP or you have childcare expense, those are all things that are going to lower your tax bill and drop your refund. If you have never ever filed your taxes in seven years and your company has been taking off the maximum amount—because they don’t want to find themselves in a position where they’re getting penalized by the CRA, you’re probably owed a refund. You can go back and file those returns. Again, it might be a little bit of work but there are a lot of online programs that can help you do that.
Tom: I believe they’ve got this cleaned up. This was at least five years ago.
Janine: Well, hopefully they did.
Tom: Hopefully they haven’t got to 12 years now.
Janine: Hopefully, yes!
Tom: Well, anyway, thanks for being on the show. This has been great, being able to give people a bunch of ideas on what they can do with taxes. I really like the recommendation of Simple Tax. I think that’s the best software out right now that’s not going to cost you anything and it’s handy online.
Janine: It’s so minimalistic and sleek. There’s not a ton of things popping up in your face which I think can be overwhelming if you don’t really know what you’re doing, especially if it’s the first time you’re filing your taxes online.
Tom: Yeah, for sure. Can you let people know where they can find you?
Janine: Absolutely. You can check me out on my website, janinerogan.com. As well, I’m on Twitter, Facebook, Instagram and my YouTube channel which is just, Janine Rogan.
Tom: Great. Thanks for being on the show.
Janine: Thanks for having me.
Thanks to Janine for coming on the show to make sure we don’t pay more taxes than we owe. You can find show notes for this episode at maplemoney.com/janinerogan. As always, the best way to support this show is to help spread the word. Reviews on iTunes, social sharing or simply telling a friend can help this show continue to grow. Thanks for listening each week. We have a lot of great guests lined up in the New Year who I’m sure you’ll learn a lot of great times from that you can apply to your own personal finances.